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Savings goals and wealth allocation in household financial portfolios

Author

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  • Changwony, Frederick Kibon
  • Campbell, Kevin
  • Tabner, Isaac T.

Abstract

We investigate how savings goals relate to wealth allocation and how this relationship is moderated by financial advice and numerical ability. Using panel data from a large household survey we find that as the number and the time horizon of savings goals increases, portfolios shift from safe assets to both fairly safe assets and risky assets. We also find that households with access to multiple sources of financial advice and independent financial advice hold more fairly safe and risky assets and that independent financial advice enhances the influence of savings goals on wealth allocation to fairly safe and risky assets. Overall we find that the possession of savings goals is associated with long term saving activity, and this is particularly evident for those with low levels of numerical ability. By enabling the formation of savings goals, the financial planning process can facilitate long-term investment in risky assets.

Suggested Citation

  • Changwony, Frederick Kibon & Campbell, Kevin & Tabner, Isaac T., 2021. "Savings goals and wealth allocation in household financial portfolios," Journal of Banking & Finance, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:jbfina:v:124:y:2021:i:c:s0378426620302892
    DOI: 10.1016/j.jbankfin.2020.106028
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    Citations

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    Cited by:

    1. Kaustia, Markku & Conlin, Andrew & Luotonen, Niilo, 2023. "What drives stock market participation? The role of institutional, traditional, and behavioral factors," Journal of Banking & Finance, Elsevier, vol. 148(C).
    2. Niculaescu, Corina E. & Sangiorgi, Ivan & Bell, Adrian R., 2023. "Does personal experience with COVID-19 impact investment decisions? Evidence from a survey of US retail investors," International Review of Financial Analysis, Elsevier, vol. 88(C).
    3. Balloch, Adnan & Engels, Christian & Philip, Dennis, 2022. "When It Rains It Drains: Psychological Distress and Household Net Worth," Journal of Banking & Finance, Elsevier, vol. 143(C).

    More about this item

    Keywords

    Mental accounting; Savings goals; Wealth allocation; Financial advice; Numerical ability; Financial goals; Household portfolios;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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